Bottom of the valley?

Silicon Valley’s status as the ultimate tech haven is under threat. Anna Deacon looks at the countries threatening to take its place at the top, and the measures they’re taking to get there


The Silicon Valley – the world-famous bastion for technological innovation – might have passed its glory days. Facing increasing competition from emerging markets such as China and India, the tech haven is suffering a ‘brain drain’ at a worrying rate.

However, any flight of expertise would simply correct for the large influx of immigrant entrepreneurs that flooded the sun-drenched region for generations. Reports indicate that as many as 52 percent of Silicon Valley’s start-up companies were founded by immigrants, and immigrant inventors contribute to 25 percent of US global patent applications.

The immigrants who flooded Silicon Valley form an integral part of the vital region; but loyalties are shifting. Turning their backs on the renowned home of IT innovation, many entrepreneurs have decided to take their practices back to their native countries, or relocate to other attractive tech havens – be it in China, India, Germany, France or elsewhere. According to a study carried out by researchers at Berkeley, Duke, and Harvard universities, many immigrant students plan to return to domestic shores rather than settle in Silicon Valley – which up until a few years ago had been the norm.

So where will the world find its new technological nexus? Countries such as China and South Korea have a distinct headstart thanks to the vast quantity of capital being pumped into their respective technology sectors. However, experts agree that it’s difficult to determine if these destinations really have what it takes to develop environments to rival the expertise and infrastructure already in situ at Silicon Valley.

Boasting practical benefits that China and India might be lacking, European countries such as the UK could well pose a threat to Silicon Valley. Russia too, is rising in tech circles.

Not one to give up without a fight, Silicon Valley spokespeople claim that the allure of the original tech hub won’t subside anytime soon. After all, there’s no escaping the fact that about $10bn is invested in budding entrepreneurial companies every year.

The original Silicon Valley at a glance
Despite the increasing competition, Silicon Valley is still regarded highly in the tech universe and its heritage alone adds to the credibility of the region. Located in the southern part of Northern California’s San Francisco Bay Area, the ‘valley’ is in fact a vast region encompassing the Santa Clara Valley, including the city of San Jose; the southern peninsula; and the southern East Bay. This area has served as the base for the electronics industry since its conception in the early 20th century, and has been behind practically every technological revolution since that time.

The area’s famous moniker was coined in the early 1970s by entrepreneur Ralph Vaerst, who came up with the name in reference to the high number of silicon chip ventures that were based in the area at the time. These days, with the production of semi-conductors gradually moving overseas, the name has become associated with the high-tech businesses and software companies that swamp the area; and is more commonly used as a byword for the entire US technology industry.

The business culture that Silicon Valley has generated is so effective that it accounts for as much as a third of venture capital investment in the US. As such, this perennially sundrenched locale, the home to so many of the world’s largest technology corporations, has held the crown as the undisputed ruler of the tech world through the culture of high-tech innovation and development the area has nurtured. Now however, it is far from unique.

Rising in East London
Silicon Valley is far from having the technological innovation field to itself. East London is rising as a tech location in its own rights and could soon morph into a bona fide silicon valley – at least if UK Prime Minister David Cameron has his way.

The plan to transform the area, which is also home to the Olympic Park for the 2012 games, into one of the world’s greatest technology centres was unveiled by Cameron last year. Speaking at a gathering targeting entrepreneurs and investors, the PM’s enthusiasm over London’s status as a ‘valley in the making’ was palpable. “Right now, Silicon Valley is the leading place in the world for high-tech growth and innovation. But there’s no reason why it has to be so predominant,” he said. “Our ambition is to bring together the creativity and energy of Shoreditch and the incredible possibilities of the Olympic Park to help make East London one of the world’s great technology centres. I want to show you how we can get there.”

Cameron is not alone in his faith in the area as a new tech Mecca, as he reflected in his speech: “For the past few weeks and months, we have had dozens of meetings with technology companies and venture capital investors from across the world. We said to them: ‘Here’s our vision for East London Tech City – a hub that stretches from Shoreditch and Old Street to the Olympic Park. This is what local businesses are saying they need. What part can you play in making it happen?’ I have to say: the response has been overwhelming.”

That response has come from the right people as well. Firms including Google, Facebook, Cisco, Intel and British Telecom are all queuing up to join the East London Tech City, along with a crucial host of start-ups and SMEs which will help contribute to fresh thinking and innovation into the area.

East London’s rising status as the UK’s tech centre has been assisted by some key developments. The area has been subject to a remarkable makeover in preparation for the Olympic Games, most notably in terms of transport links. Now one of the best connected areas in the country, by 2012 East London will boast a fully operational terminal providing high-speed rail travel to the continent as well as trans-continental air travel courtesy of London City Airport.

On the back of the Olympic developments, an influx of new businesses and retail outlets have also helped improve the status of region. The soon-to-open Westfield shopping centre is one of a number of high-profile ventures that have already immeasurably improved the status of a once undesirable area. This is only likely to improve as all the features of the area become fully operational as the Olympics draws near.

The final draw for the area is the benefits of East London’s peripheral. Tech City is sandwiched between the heartland of London’s creative industries and the City of London, one of the world’s great financial centres. Factor in the close proximity of several widely respected universities and the area has every amenity and stimulus it needs to succeed.

Crucially, in addition to the conception of Tech City, the UK government is actively working to improve the climate and culture for technology and entrepreneurialism, much as Silicon Valley has done par excellence. “We are already doing a lot to support this new economy, from making reams of city data freely available to London’s technical talent for transformation into apps, websites or mobile products, to piloting public Wi-Fi on London Underground,” enthused Boris Johnson, the Mayor of London.

Much as Silicon Valley has, Tech City is also targeting the demographic of overseas investors and developers. The launch of an Entrepreneur Visa was brought about to encourage individuals with good business ideas to set up companies with ease in the country.

Another scheme, the Entrepreneur First programme, was unveiled earlier this year targeting elite graduates.

Based on the Teach First programme designed to assist young budding teachers, the format is a two year programme headed by McKinsey & Company, through which graduates with promising business ideas will receive mentoring, business training and networking opportunities. When the two year scheme is up, the participating candidates will be given the option to either continue building their own business, or to apply to graduate recruitment schemes within some of the companies that are associated with the scheme. The companies that form part of the graduate boosting system are a who’s who of successful businesses, including Microsoft, Tesco, BNP Paribas, BT, Cisco, Qualcomm, Intel, Civil Service Faststream, L’Oreal, Allen & Overy, Diageo, Pricewaterhouse Coopers, Shell and RBS.

The UK is pulling out all the stops, it seems. But does it have a fighting chance to become the new Silicon Valley? Considering the UK set in motion the first industrial revolution about two centuries ago, a tech renaissance would simply reinstate its past glory as a leader in the field. Add in the strong educational framework and a forward-thinking and cosmopolitan population, and Tech City has a great deal in its favour.

China shows its tech muscles
In a bid to flaunt an innovation-based economy by 2020, China is advancing swiftly into the realm of technology, and is now considered one of the strongest contenders to seriously challenge Silicon Valley.

Recognising the potential, foreign and native investors alike have raced to inject funds into the tech sector.

Although the Chinese tech environment remains very much under development, it has quickly grown from its blueprints. Recognising the potential of the region, an increasing number of top-notch entrepreneurs and major technology companies from across the globe are flocking to the country, turning their back on the sun-drenched destination that previously held their attention. Indeed, if there is a country revelling in brain gain, it’s China.   
Generous funding is not the only element that tempts the best in foreign minds to settle in China; the country’s culture of tech innovations is becoming a draw in its own right. China might be known as the copy cat above all others – be it in the field of hand bag design, technology or otherwise – but there’s no doubt that the country has started to impress its surroundings with an environment that supports original ideas.

Already some native companies are rising to position as world players in innovation. The Chinese internet conglomerate Tencent boasts a stock market value that hovers just below the names of leading lights such as Google and Amazon. Two other strong contenders are the leading e-commerce portal, Alibaba, and Huawei Technology, who has made its name pioneering next-generation mobile communication infrastructure. In the field of computer engineering as well, one of the fastest computers ever to be produced is the brainchild of Chinese engineers. Collectively, these forward-thinking companies and products have helped to boost China’s status as a viable force in the tech sector.

As a way to flex its tech muscles to the world, China plays host to one of the world’s most important conferences on tech innovation and entrepreneurship. CHINICT (a portmanteau of China and ICT) is an annual event that has now been running for eight years and is next set to take place in Beijing in May 2012. The conference attracts delegates from all over the world and the interest it generates is highly indicative of China’s growing status in the tech universe. As a result, the event has grown increasingly grandiose as the years go on.

What may hold China back in the zealous race to become the new Silicon Valley is its current lack of indigenous technical expertise, making it tough to rival the established culture of tech geniuses present in Silicon Valley. Another disadvantage is presented by the somewhat rigid government regulations related to business, coupled with tricky intellectual property rights. Furthermore, the country’s educational system is nowhere near as sophisticated as that of the US and Europe – although it is improving. About four million pupils graduate every year in the country, and around 600,000 leave universities with a degree in engineering, so China’s workforce is set to become more skilful. Given time, China might well become a valley in its own right.

Russia 2.0
Another country eyeing Silicon Valley’s throne is Russia. The country has significantly improved its credentials for business and intends to prove this with the completion of an awe-inspiring new technology park by 2014. Set to allow space for more than 500 firms and costing in excess of $2bn, its hoped the investment will pay off in a new generation of entrepreneurs.

Serving as the inspiration behind the concept, the Zurich Technopark will provide the Skolkovo project with vital know-how. The two entities are said to be forming a collaborative alliance, with the CEO of the Zurich Technopark, Henning Grossmann, planning to conduct regular quality controls of the Russian site and assist in its business promotion. 

The park will be based in the Moscow suburb of Skolkovo, a sleepy and rural area about 20km west of central Moscow, where affluent Russians keep holiday homes. The man behind the initiative is the Russian billionaire Viktor Vekselberg, who will take charge of the project, backed by the support of billions of dollars in government investment. To lure quality players – individual entrepreneur and companies alike – the Russian government will offer tax breaks as well as funding schemes for selected companies. Setting the bar high, the hope is that the tech park in Skolkovo will attract companies such as international software firm Kaspersky Lab, along with other major names, both domestic and international.

Positive points that will help to boost the credibility of the project is that it will be largely autonomous, boasting its own water and power supplies, to avoid problems companies can otherwise face when securing these types of amenities.

It all sounds promising. Insiders fear though that with such large sums surrounding the tech park that it may attract corruption, hiking up prices. Even if measures are taken to prevent this happening, the very perception of Russia as a less reputable location to do business will create hurdles for those trying to promote the Skolkovo park. As such whether Russia can create the next Silicon Valley remains to be seen.

Silicon Valley hasn’t lost its crown just yet. But neither is it the definitive location for technology companies that it once was. As the world fully embraces the possibilities provided by the internet age, it’s conceivable that new developments could come from any corner of the globe. And any one of them could cause the sun to set on the illustrious valley.